Prime UK commercial property proves resilience

The UK’s prime commercial property market has proven its resilience in the last year, with rental values rising 0.4 per cent in the final quarter of 2016.

Rents rose 0.4 per cent quarter-on-quarter in the three months to the end of the year, according to CBRE, the lowest quarterly growth in 2016. Across the year, though, prime yields were “relatively stable” over all sectors, with rents up 3.7 per cent in 2016 as a whole, slightly down on 2015’s 4 per cent, with Q1 and Q2 making the most significant impact on the full year.

The Industrial sector saw the biggest increase in rental values in Q4 2016 – up 1.1 per cent quarter-on-quarter – with London and North West outperforming all other locations (up 2.8 per cent and 2.7 per cent respectively). The sector also enjoyed the largest rise in rents across the whole of 2016 (6.5 per cent), ahead of high street shops (5.4 per cent – up 0.3 per cent in Q4). Shops in Scotland saw rents grow by 2.9 per cent over the quarter compared to the 0.5 per cent increase across the Rest of UK (excl. South East and Eastern). The Office sector experienced no increase in prime rents.

Overall, prime yields remained relatively stable over Q4 2016, falling by just 1bp to 5.4 per cent, with yields for offices, retail warehouses, prime shopping centres and industrials all staying relatively unchanged. On average, high street shops prime yields fell by 7bps, with West Midlands shop yields decreasing by 26bps.

“Despite 2016 being characterised by uncertainty in the UK’s political and economic landscape, prime commercial property sector has again shown its resilience with positive, albeit easing, growth in prime rents across all main sectors,” says Miles Gibson, Head of UK Research at CBRE. “The Industrial sector in particular has helped steady the ship throughout 2016.”

 

UK commercial property rents remain resilient following referendum

27th October 2016

UK commercial property rents remained resilient in the quarter following the UK’s EU referendum.

The vote to leave the European Union sparked uncertainty in the country’s economy, which fuelled some concerns about the UK commercial property market, particularly in London. While capital values dipped 0.2 per cent, driven by increased yields in the prime Office sector, rental values for UK prime commercial property grew 0.6 per cent in Q3 2016.

The High Street Shop and Industrial sectors led growth, with rents rising 1.5 per cent and 1.1 per cent respectively. Central London high street shops saw rents increase 2.8 per cent over the quarter compared with the 0.9 per cent increase seen across the Rest of UK (excl. South East and Eastern). Just under one third of tracked locations in Central London recorded increased rental values, with the willingness to pay premium rents for limited stock in the most sought-after streets showing no signs of slowing.

“Although the slowing of prime rental growth was expected given both the ‘Leave’ vote and the position of the rental cycle ahead of the referendum, some key sectors have continued to capitalise on high occupational demand for limited supplies of prime space,” says Miles Gibson, Head of UK Research at CBRE.

Overall, prime yields remained relatively stable during the quarter, increasing by 5bps to 5.5 per cent. This slight uplift of yields was driven by increases in both the High Street Shop and Office sectors. On average Central London prime office yields increased by 17bps, while Rest of UK (excl. South East and Eastern) office yields increased by 4bps.

 

Bond Street – the highest retail rent in Europe?

27th September 2016

Bond Street has broken the record for the highest retail rent in the UK.

Polo Ralph Lauren’s store now pays a rent of £2,225 per square foot, following a rent review. The store, based at 1 to 5 New Bond Street, is owned freehold by Pollen Estate, with a private company advised by Metrus holding the leasehold for the property.

The figure marks the second time the record for highest retail rent in the UK has been broken this year, with luxury watch firm Hublot paying £2,000 per square foot at 14 New Bond Street. Together, they reinforce Bond Street’s status as one of the most in-demand retail locations, with Property Week suggesting that it might even be the highest retail rent paid in Europe.

“New Bond Street, London, has again proved to be one of the most prestigious and sought after retail locations in the world,” Simon Stone, equity director and head of professional department at Metrus, tells the publication. “The best retailers want to be here and will bid competitively for any available building.”

Photo: Garry Knight

 

UK commercial rents hold steady for second month

6th September 2016

Photo MongFish

Rental values across the UK’s commercial property market held steady for the second month in a row in August.

Offices in London’s West End and Midtown saw rental values drop by 0.3 per cent, according to CBRE, but Outer London/M25 offices performed better, with rental value growth of 0.1 per cent. Rental values grew slightly across UK retail property, by 0.1 per cent.

Capital value declines, meanwhile, slowed significantly, with values dipping 0.5 per cent in August, far smaller than July’s 3.3 per cent, which suggests any negative impact from the Brexit vote is diminishing. Indeed, total returns also rose from a 2.9 per cent fall in July to a 0.1 per cent dip across the UK last month.

August is traditionally a quiet month for the market, but the data has been welcomed by CBRE as a sign of resilience.

“Despite fears that the UK property market would suffer significantly as a consequence of Brexit, August turned out to be a relatively stable month, with rents holding up and the drop in capital values starting to slow, and more quickly than many expected,” comments Miles Gibson, Head of UK Research at CBRE.

The only drag on the market’s recovery is the UK office sector, with capital values dipping 0.9 per cent in Central London in August, although this is still a markedly smaller dip than the 4.1 per cent recorded in July.

 

Commercial rents remain stable as capital values decline

10th August 2016

Commercial rents remained stable in the wake of the UK’s vote to leave the EU, although capital values declined.

Rental values across the UK’s commercial property market were steady in July, while

Capital values fell by 3.3 per cent, according to the latest CBRE Monthly Index, with the fall “widely expected”, notes the report. Heightened economic uncertainty, especially for financial services firms, hit offices in the City of London, shrinking capital values by 6.1 per cent. (Overall, capital value decline in the Central London office market was the same as for offices across the UK, at -4.1 per cent.)

Capital values in the retail sector fell 3.6 per cent, but the industrial property segment was more insulated with a lower fall of 2.2 per cent for the month, reflecting continued strong demand but weak supply.

Rental value growth, on the other hand, dipped to zero in July from 0.2 per cent the month before, holding steady across office and retail sectors (including Central London offices), and growing by 0.1 per cent in the industrial sector.

Miles Gibson, Head of Research at CBRE UK, says: “Capital value growth was always expected to falter at some point during 2016, as global economic uncertainty cast doubt on the likelihood of the strong growth seen in previous years persisting for much longer.”

“It’s reassuring to see rental values have held firm in the face of this heightened uncertainty, a positive sign that the UK occupier market remains strong, sustained by record levels of employment, and low borrowing costs,” he adds.

“It will be some time until we understand the full impact of the Brexit decision, but the Bank of England’s base rate cut and more quantitative easing are likely to be supplemented by a similarly supportive fiscal stance in the autumn.”

 

UK commercial property enjoys steady growth

13th July 2016

UK commercial property enjoyed steady growth in the run-up to the EU referendum. The sector has been hit by uncertainty in the aftermath of Britain’s vote to leave the EU, but CBRE figures from June show commercial real estate’s strength in the face of the initial headwinds surrounding the referendum.

Commercial property rents across the UK grew by 0.2 per cent in June, on pace with the rest of 2016, despite uncertainty in the build-up to the Brexit vote. Capital values grew by 0.1 per cent over the month, slower than May’s 0.2 per cent, but the 0.6 per cent total returns for the month matched returns seen almost every month of the year to date.

In H1 as a whole, rental value growth hit 1.1 per cent, trailing the 1.7 per cent seen in the same period of 2015. Capital values grew by 0.6 per cent for H1 2016, some way shy of the 4.1 per cent in H1 2015. Total returns were also lower, from 6.7 per cent in H1 2015, to 3.0% in H1 2016. This lower return partly reflects an increase in stamp duty land tax in March.

The retail sector experienced rental growth of 0.1 per cent in June, above trend for the year so far, but capital values, which had been flat in April and May, fell by 0.2 per cent. Total returns in the sector were 0.3 per cent, compared with 0.5 per cent the month before.

The industrial sector experienced a strong monthly performance, with rents increasing by 0.4 per cent, equal to its best monthly performance in 2016.

The office sector saw rents grow by 0.3 per cent in June, an improvement on the 0.2 per cent of both April and May, and in line with trend so far this year, while capital value growth slowed slightly from 0.4 per cent to 0.3 per cent.

Miles Gibson, Head of Research at CBRE UK, said: “Overall, rents and capital values continued to grow in June, with the industrial sector in particular showing strong growth in a month of significant uncertainty. Clearly, capital value growth has slowed, but occupier demand has remained high across the country, pushing up All Property rental growth as fast as any other month this year.

“These figures reflect CBRE valuations carried out in the days immediately following the referendum vote, but July’s monthly index will give a much clearer indication of how monthly-valued assets have been affected by the uncertain environment for commercial property in the aftermath of the Brexit decision.”

UK commercial property rents keep pace with previous year

11th May 2016

Commercial property rental value growth is keeping pace with previous years, according to CBRE.

Occupier demand shows little sign of slowing in the first four months of 2016, but capital value growth has been considerably lower so far in 2016 than previous years, notes the firm’s latest report, with growth currently pegged at 0.2 per cent compared to 2.2 per cent for the same point last year.

Rental growth, though, reached 0.8 per cent in the first four months of the year, equalling the year-to-date growth for the same time period in 2015 and surpassing 2014’s total of 0.6 per cent.

Miles Gibson, Head of UK Research at CBRE UK, says: “Rental value growth seems not to have been affected by political speculation around the Mayoral and local elections and June’s EU referendum. After the Chancellor’s tax grab around stamp duty, which inevitably had an impact on capital values in March, returns have reverted to trend for the year to date.”

Indeed, the new stamp duty tax bands introduced by the Chancellor increased acquisition costs for properties valued at over £1.05 million, which slowed down growth in March, but April’s figures showed a return to the levels seen in February, rising from -0.4 per cent to 0.2 per cent.

“The economic fundamentals remain sound and should the UK vote to remain part of the EU, we expect a positive outlook for the second half of the year,” adds Gibson.

 

UK commercial property set for another strong year

15th December 2015

The UK commercial property market is set for another strong year in 2016, predicts CBRE.

The global advisor notes that 2015 has been a record year for investment and that predicts that 2016 will see the trend continue with investment of around £70 billion during the year.

CBRE predicts total returns of around 10.1 per cent in 2016, declining yet remaining positive through the subsequent years to 2020.

“As capital value growth slows, income will become the most important driver of returns,” comments the firm’s report. “A strong economy and an increasing role in e-commerce suggests that the industrial property market will outperform with total returns of 9.5 per cent per annum on average for each of the next five years. Retail property is expected to experience happier times as consumer disposable incomes recover, with returns of 7 per cent, while recovering supply in the office market will constrain total returns to 7.4 per cent on average each year to 2020.”

Miles Gibson, Head of UK Research, CBRE UK, says: “After several years of strong investment and capital growth, 2016 will offer steadier and more sustainable returns for the commercial property market. The UK economy remains strong, underpinning the rental value growth which will form a much more important part of investor returns than in the last few years.”

Foreign investment has long been one of the main drivers of the Central London market. This levelled out at around 70 per cent of all Central London investment in 2014-15. In contrast, foreign investment has not historically been a significant part of the UK market outside of the capital’s centre, making up only around 20 per cent of acquisitions. In recent years, though, has changed: in 2015 so far, 32 per cent of transactions (by value) outside London have attracted foreign buyers from 31 different countries.

The origins of foreign capital will also change, forecasts CBRE. Asian investment inflows have been higher than the 10-year average, with countries such as Singapore and Taiwan becoming more important. Meanwhile, European and US investors have withdrawn a little over the last year, potentially due to a recovery in Europe promising relatively better value than the UK. Increasingly, Middle East investment is coming from private wealth rather than sovereign wealth, given the latter is suffering from the low oil price.

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